The Effect Of Production Cost Control In Manufacturing Industry (A Case Study Of PZ Cussons Nigeria Limited)

Project and Seminar material for Accountancy

Abstract

In the world today, the main motive or objective of all business organization among other aims must be to make profit. But profit can only exist under one condition. The condition being that income from the business activity or activities must exceed the expenditures. This is to say on the true view that there must be excess of revenue over cost and expenditure.

Often times, profit can only be obtained when there is increase in selling price of a product or reduction in the production cost. Since excessive price increase in dreaded by public, it becomes very vital to achieve the business objective through an efficient and effective production cost control on each of the form’s product.

Based on the ground, the necessity of production cost control has brought this research which was undertaken to give actual background on his control measure the need to control cost, the effect of uncontrolled cost, and also in order to achieve this aim in a manufacturing organization employing PZ Cussons limited, Nigeria.

By the study, one can come to an inevitable conclusion that cost can be controlled in material, labour and overhead in a firm and also uncontrolled production cost too can lead to skyrocketing price of goods or product of the firm and even their services as the case may be, which affect the growth of the firm, and the operating expense as well.

Table Of Contents

Preliminary Page(s)

• Title page
• Approval page
• Dedication
• Acknowledgement
• Abstract
• Table of contents
• List of tables

Chapter One

1.0 Introduction

• 1.1 Background to the study
• 1.2 Statement of the study
• 1.3 Objective of study
• 1.4 Research Questions
• 1.5 Statement of Hypothesis
• 1.6 Significance of the study
• 1.7 Scope of the study
• 1.8 Limitation of the Study
• 1.9 Definition of terms

Chapter Two

2.0 Literature Review

• 2.1 Production cost
• 2.2 Production cost control
• 2.3 Cost reduction
• 2.4 Cost control
• 2.5 Accounting for element of production cost
• 2.5.1 Accounting for material cost
• 2.5.2 Accounting for labour cost
• 2.5.3 Accounting for overhead
• 2.6 Control
• 2.6.1 Material control
• 2.6.2 Labour cost control
• 2.6.3 Production overhead control

Chapter Three

3.0 Research Design and Methodology

• 3.1 Introduction
• 3.2 Research design
• 3.3 Sources /method of data collection
• 3.4 Population and sample size
• 3.5 Sample size
• 3.6 Sampling techniques
• 3.7 Validity and reliability of measuring instrument
• 3.8 Methods of data collection

Chapter Four

4.0 Presentation and Analysis of Data

• 4.1 Introduction
• 4.2 Presentation of data
• 4.3 Analysis of research questions
• 4.4 Test of hypothesis
• 4.5 Interpretation of results

Chapter Five

5.0 Summary, Conclusion and Recommendation

• 5.1 Introduction
• 5.2 Summary of findings
• 5.3 Conclusion
• 5.4 Recommendations
• References
• Appendix(ices)

List Of Tables

• 4.1 Break of the questionnaire distribution and responses
• 4.2 What is the type of company you run?
• 4.3 What is the costing method employed by your company?
• 4.4 Does the costing system employ exist in any of the following?
• 4.5 How often is your production cost budgets prepared in your company?
• 4.6 Does you use production cost to determine the price of your products?
• 4.7 Is there any other factor apart from production cost that affects your product price fixing?
• 4.8 Do you record much gain at a slight decrease in your production cost?
• 4.9 In your company, is there any relationship whatsoever between price and production cost?
• 4.10 Are your company fixed internally by the management?
• 4.11 If it is not fixed internally, is it done by the natural market forces of demand and supply?
• 4.12 Have your firm open new braches even when your production cost rising?
• 4.13 Has production cost affecting your growth of expansion in recent years?
• 4.14 Are there any other factors that hinder your growth apart from increase in production cost?
• 4.15 Do you include production cost as part of your operating expenses?
• 4.15 Do you include production cost as part of your operating expenses?
• 4.16 If you don’t include production cost as part of your operating expenses, so the two have strong relationship in firm?
• 4.17 Are there other factors that affected or increased your operation expenses?
• 4.18 Do you think that your management applies affective control mechanism to your operation in the firm?
• 4.19 Your section/department
• 4.20 What is your academic qualification?
• 4.21 What is your sex?
• 4.22 The observed frequency and expected frequency in the cells of variables?

Chapter One

1.0 Introduction

It is paramount that the feature of every organization is the pursuit of a goal or objective and this target exists in different dimensions, but it is evident that every manufacturing organization whether sole proprietorship, partnership, corporations among others must have an objective and the primary objective of those organization is to maximize profit. Any other objective such as social services is purely secondary and generally dependent on profit. It must have control over the cost of production and services.

Manufacturing is the transformation of raw materials into finished goods through the use of labor and factory facilities. It is clear from this point of view that currently, the prices of materials are so exorbitant to the extent that manufacturing companies are in a serious profit squeeze. They are struggling to maintain satisfactory earnings in a situation where costs are rising but some industrialist contend that profit increase are becoming more difficult to obtain even at lest proportionate degree to cost foreign and domestic companies as well as government efforts to prevent further inflation put serious restraints on additional increase in a profit.

In addition to these the government (both state and federal levels} stabilization measure aimed at restructuring and improving the economy and their attendant cost effect. Some of these measures like the second tier foreign exchange market (SFEM) and structural adjustment programme have had the effect of not causing increasing price due to cost of input but have gone further to multiply in built imported inflation by incremental exchange ratio of the naira the convertible currencies use In importation. These governmental structural re-adjustment have contributed to a great extend in rendering most profit seeking long range plans of companies in effective.

Thus, most of these companies are compellent by the prevailing economic circumstances to be more interested in research and development for the expansion of profit margin of the already existing products.

This role as well helps them to event diversification, thus , this quest for increase profit margin the high of the near fixed nature of revenue implies that the achievement of some depends of product management of cost.

So to maintain the level of earning or to increase earning, following these situations, many companies taking drastic measure to control , if not reduce cost,do away with waste and increase productivity at all ebbs. The industrial revolution which brought about improvement and technological technics do help to control and reduce cost but are in most cases not adequate.

The purpose of this research work is examine the various cost control measures being used in manufacturing companies like PZ Cussons Nigeria Limited as a case study, the consequences of these reasons and to propose courses where and if necessary. The choice ids because PZ Cussons Nigeria Limited is involved in the manufacturing of a product faced with the indiscriminative rise in price of their products which is attribute to the cost of production.

1.1 Background Of The Study

This project which has its title as “the effect of production cost control” as a case study of PZ Cussons Nigeria Limited. PZ Cussons was founded in 1879, as a trading post in Sierra Leone by George Paterson and George Zochonis as Paterson Zochonis. The British owned company expanded its operations into nearby Nigeria before the end of the 19th Century. PZ Cussons Nigeria Limited is a major manufacturer of personal healthcare products and consumer goods. It operates worldwide, especially in Africa and commonwealth nations. Their products include imperial leather soaps, Shampoo, Gels, Milk, Olive oil, detergents, healthcare products, cosmetic products, Venus range of hair care products etc.

This topic “The effect of production cost control is to find out (If there is any) effect of production cost control in the PZ Cussons Nigeria Limited. Based on this ground, the necessity of production cost control has brought about this research which was undertaken to give actual background on his control of cost also in order to achieve this aim in a manufacturing organization employing PZ Cussons Nigeria Limited. One can come to an inevitable conclusion that cost can be controlled in material, labour and overhead in a firm and also uncontrolled production cost too can lead to skyrocketing price in goods or products of the firm and even their services which affect the growth of the firm and operating expenses as well.

1.2 Statement Of The Problem

PZ Cussons Nigeria Limited is facing a lot of problem in their manufacturing industry. But here, I will mention few important problems that are falling on them that need to be looked into before it causes either break down of the company or mark the end of the company. The main problems are stated below:

1. Inadequate raw material:

One of the major problems PZ Cussons Nigeria Limited face is insufficient or lack of raw material raw materials. Sometimes the make use of foreign materials that are not available in Nigeria, which delays them from producing the normal quantity they are supposed to produce in a mouth.

2. Non Employment of skilled labor:

This is another major problem that PZ face. They are supposed to employ skilled laborers or experienced laborers which help in improving their products, thereby making them to produce products that have high quality.

3. Poor management:

Every company facing this problem easily breakdown if immediately effort is not put. And it is one of the problems PZ Cussons Nigeria Limited face.

4. Balancing maintenance with throughput:

Throughput has to do with output. PZ Cussons face the problem of balancing the cost of keeping equipment functioning is and increase in throughput to ensure customer satisfaction with delivery lead time.

5. Environmental concerns and considerations:

Local environment and employee, environmental regulations can be expensive .

1.3 Objectives Of The Study

The sole objectives of this study are:

1. To examine the cost control system in operation of PZ Cussons Nigeria Limited.
2. To evaluate them as to their effectiveness or otherwise.
3. To find out all the inherent deficiency.
4. To make recommendation for solving identified problems possibly improve and update any absolute technique line with recent trends.
5. To find out the effects of production cost on the price of a product, growth of the firm and the operating expenses.

1.4 Research Questions

1. What is the type of company you run?
2. What is the costing method employed by your company?
3. How often are production cost budget prepared in your company?
4. What is your position in the company with respect to decision making?
5. Do you use production cost to determine the price of your products?
6. Is there any other factor apart from production cost that affects your production cost that affects your products price fixing?
7. In your company is there any relationship whatsoever between price and production cost?
8. Do you record much gain at a slight decrease in your production cost?
9. Are your priced fixed internally by the management?
10. Has production cost affecting your growth of expansion in recent years?
11. Is there any other factor that hinders your growth apart from increase in production cost?
12. Do you include production cost as a part of your operating expenses?
13. Are there other factors that increased your operating expenses?
14. Do you think that your Management applies effective control mechanism to your operation in the firm?

1.5 Statement Of Hypothesis

The study of production cost control can be done using the formulated hypothesis below:

1. HO: Production cost has no significant impact of the price of a product.
   Hi: Production cost has a significant impact on the price of a product.
2. Ho- Uncontrolled production cost does not affect the growth of the organization.
   Hi- Production cost affects the growth of the organization.
3. Ho-Uncontrolled production cost does not increase the operating expenses of the firm.
   Hi – Uncontrolled production cost increases the operating expenses of the firm.

1.6 Significance Of The Study

It is a fact that production cost constitutes the major proportion of operating cost is manufacturing organization. Therefore, for such manufacturing company to survive, grow and pay its shareholders by making reasonable profit, the effective and efficient control of such a cost by management become very vital.

The significance of studying the effect of production cost control in PZ Cussons Nigeria Limited is that the result will help other manufacturing companies to identify the exact problems affecting their production cost control. For students who would wish to research further on this topic, it will give them a due on what goes in the industry prepare their minds on some hardships to be encountered and also limit their research.

1.7 Scope Of The Study

Although there are many manufacturing companies in existence in the country, but because it is not all possible for the researcher to cover and coupled with time and financial factors constraints, This present study is designed to cover only one manufacturing company PZ Cussons Nigeria Limited. It is believed that what is detained in PZ Cussons Nigeria Limited will be applicable to other Manufacturing Companies.

The researcher, while trying to obtain information from respondents encountered certain drawbacks which hindered data collection. The reluctance of some officials to grant audience during the course of this study was a stumbling block in the way of a key officer to release all the information that required figures, which he took to be sensitively secret and confidential, posed a serious limitation to the study.

1.8 Limitations Of The Study

1. Insufficient Literature Materials:

The greatest hindrances of this project work are the lack of adequate reference material for this work to be effectively carried out by the researcher.

2. Poor Responses:

The response of people during interview was very poor and there were incomplete to that it is confidential speak on such issues or they should tell you that it is confidential as a result of this information was not let out easily.

3. Finance:

Due to fairness from school to the company, it cost so much money for transportation thereby causing some backwardness for the researcher to complete the project in time.

4. Time Factor:

This also the greatest hindrances of this project work are the time factor which affects the researcher from her studying. Some official will tell you come today, come tomorrow, not knowing that everything is time. While trying to obtain information from respondents encountered certain drawbacks which hindered data collections.

The refusal of a key officer to release all the information that required figures, which he took to be sensitively secret and confidential posed a serious limitation to the study.

1.9 Definition Of Terms

Cost Centre:

A cost Centre is defined as a location, person, or item of equipment in respect of which cost may be ascertained or related to cost unit”

Cost:

The amount of expenditure (actual or notional) incurred on or attributed to specified thing or activity.

Cost Units:

A quantitative unit of product or service in relation to which cost is re-ascertained.

Control:

Control is the monitoring of activities to see that organizational goal and objective are achieved as planned. It is a measurement of the set out goal of a firm to achieve an aim or objective.

Manufacturing Organization:

It is defined as the industry that turns primary product into finished goods.

Manufacturing:

Manufacturing is the transformation of materials into finished goods through the use of labor and factory facilities.

Budgetary Control:

This is the establishment of department budget relating the responsibilities of executives to the requirement of a policy and the continuous either to secure by individual action the objectives of the policy or to provide a firm basis for its revision.

Production:

Is a process of combining various material inputs and material inputs (plans, know how) in order to make something for consumption.

Production Cost:

This is cost incurred by a business when manufacturing a good or producing a service. Production costs combine raw material and labor. To figure out the costs of production per unit, the cost of production is divided by the number of units produced.

Product:

This is anything that can be offered to a market that might satisfy a want or need. In manufacturing products are bought as raw materials and sold as finished goods.

Chapter Five

5.0 Summary, Conclusion And Recommendations

5.1 Introduction

This final chapter of the project gives the summation of the finding of research, the conclusion reached as well as providing viable recommendations. Recommendation Is a place the researcher will explain all the problem of the company and give suggestions on how to tackle it so as to not affect the company growth or company profit.
So here, the researcher to the project gives the summary of the research, the conclusion reached as well as providing viable recommendations that can help in improving the effect of production cost control.

5.2 Summary Of Findings

The overall study of the production cost control effects in a manufacturing organization of which PZ Cussons Nigeria Limited is a case study ended up with the findings:

1. The type of company PZ Cussons Nigeria Limited run is a manufacturing industry.
2. The costing method employed by the company is process costing.
3. The costing system employed exists in cost ascertainment.
4. The production cost budget of the company is been prepared quarterly.
5. The production cost is used to determine the price of their product.
6. That there is other factor apart from production cost that affect their product price fixing.
7. That they record much gain at slight decrease in the production cost.
8. There is relationship between price and production cost.
9. Their price is not fixed by the natural market forces of demand supply.
10. Price is not fixed internally by the Manufacturing.
11. Their company hasn’t opened any new branch even when their production cost is rising.
12. Production cost has not affected their growth of expansion in recent years.
13. There is no other factor that hinders their growth apart from increase in production cost.
14. They include the production cost as part of their operating expenses.
15. There are no other factor that affects or increase their operating expenses.
16. There management does not apply effective control mechanism to their operation in the firm.
17. Their junior staff is bigger than their senior staff.
18. That the academic qualification of WAEC is higher than OND/HND.
19. That the male staff is higher than the female staff.

5.3 Conclusion

In concluding this work, it is of paramount important to reiterate the fact that cost is a necessity for any organization that wishes to survive and even grow much as one can agree that for an organization to be expected by controlling its production cost as far as possible or up to bearable extent, so invariably, cost control effectively means therefore, profit control.

A well-organized organization such as PZ Cussons Nigeria Limited, should develop an effective costing system so that proper costing of its material labour and overhead can be easily effected so as to determine the actual cost of production based on the analysis carried out.

It is not just enough to accumulate cost data as this is not an end in itself, rather cost data analysis and presentation are basis for production cost control and other vital decision.

Against this background, it is the opinion of the research that PZ Cussons Nigeria Limited being a manufacturing company which normally incur a lot of cost in process of production should pay more attention to production cost control as it is one of the factors, if not the only factor that can determine the long term survival of the organization for no organization operates with unlimited resources.

Hence, the need to make maximum use of the scarce resources at the disposal of the company to ensure maximum profit in the face of growing competition from both old and new entrants. The increasing cost of doing business in this country also calls for effective and efficient cost control system to be installed and maintained by all manufacturing companies as a sure way for survival.

5.4 Recommendations

1. Based on the analysis of the collected data from the firm, the following recommendations are quite necessary, for effective control of production cost the company should practice process costing method in its true meaning that means that cost should be ascertained along the production processes for adequate and effective cost control.
2. Moreover, it is very vital to apply the economic order quantity (EOQ) model and its associated re-order quantity parameter should be emphasized. This will help the firm to know the actual time to place and receive an order to be placed all these will go a long way in reducing the high carriage cost incurable from excessive raw material stock piling. Also the stock pile up is sort of waste and poor working capital management as the capital is being tied up in stock.
3. On another serious note, the firm should intensify its local raw material substitution drive so as to reduce the imported content of its raw materials. The firm should equally try to research into hoe. It can obtain some of these materials locally. Equally of importance is the firm’s ability to maintain the product quality even after the local material substitution.
4. Another area of insight of more effective supervision and inspection of the production facilities that should be called out on a regular basis in order to reduce or control the wastage in areas of leakage of materiel. This will help in prompt discovery of such faults and subsequent necessary actions to rectify them.
   LABOUR: The firm should exercise effective control over labour do that it will not encourage and pay idle time unnecessary. The payment of idle time is manifested in group achievement basis used by the firm as a basis for determination of remuneration is not encouraging and the firm should try to abolish that for good and effective cost management in labour.
5. Moreover, supervisors should be instructed to be close to the workers under them, so that the end of that period, the best workers will be rewarded by giving them special prices or incentives. This will go a long w work groups, increasing their way in motivating the various work groups, increasing their productivity with the resultant reduction in overhead cost.

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